Featured Story: Financial Inclusion in the United States
Last week, the White House released a brief by Jason Furman, Chairman of the Council of Economic Advisers, on financial inclusion in the United States. Noting low-income Americans often pay more for basic commodities from diapers to canned food, Furman explains that financial services are no different: un- and underbanked households spend upwards of $1000 a year on check cashing fees. Fortunately, though, financial inclusion is on the rise in the U.S. across all demographics; and financial technology (fintech) holds promise for broadening access to safe and affordable financial products to even more currently excluded households. Furman writes: “[I]nnovation in the financial industry [could] help build on these positive trends or allow consumers who already have bank accounts access innovative new products that can improve their overall financial health.”
In concert with the release of the brief, White House officials met with regulators and leaders in the fintech industry for the “Fintech Summit”, reports Rachel Witkowski in The Wall Street Journal. “The half-day event...largely focused on how government agencies can tap into the innovation, in which new firms are offering small-business owners and consumers faster forms of loans and digital payments.” Anne Kim of Washington Monthly highlighted an example of one such innovation in Cuyahoga Falls, Ohio. Kim writes that “city employees are now receiving an unusual benefit: the ability to borrow up to $3,000 in advances against their future pay. Workers who take out a loan have up to a year to pay it back, and the payments are automatically deducted from their paychecks.The annual interest rate is 24 percent.” The benefit, created by Employee Loan Services, is called “TrueConnect” and was established to provide consumers with an alternative to high interest predatory payday loans.
News Highlights: State-Level Welfare Reform, Universal Basic Income, Retirement Savings, and More
“[California] Gov. Jerry Brown and the Legislature have reached an agreement on a budget for the coming fiscal year that repeals a long criticized rule limiting welfare payments for people who have more children,” writes the Sacramento Bee’s Jim Miller. The previous rule “prohibited increases in aid for any child born into a family that had been receiving aid for at least the 10 previous months.” The rule was part of California’s larger budget for the next fiscal year, which included other provisions on affordable housing for the mentally ill, rainy-day cash reserves, child-care, office infrastructure, and more.
In New America Weekly, Sade Bruce highlights a recent Asset Building Program event on foreclosure fraud during the Great Recession that featured panelists David Dayen, author of Chain of Title, former Congressman Brad Miller, Julia Gordon of Neighborhood Community Stabilization Trust, and New America’s Reid Cramer. While the group touched on many aspects of the foreclosure crisis, they made one thing very clear: there was not enough support for struggling homeowners in the wake of the housing bubble burst. For starters, homeowners were not permitted to claim bankruptcy to restructure their mortgage—a common path individuals take to refinance loans if they find themselves financially insolvent. “The housing industry had managed to exempt itself from this system. [S]uch that a person could go to bankruptcy court and restructure almost any other debt except their principal residence,” Gordon noted.
The Special Committee on Aging held a hearing to explore how technology can help to shore up the retirement savings shortfall, entitled “Closing the Gap: Innovations to Promote Americans’ Financial Security”. In her opening statement, Senator Susan Collins (R-ME) explained the financial straits in which many retirees are finding themselves: “It is difficult to imagine making ends meet in retirement with just $25,000 in savings and the typical Social Security benefit of about $16,000 a year. But for one-in-four retirees, this is the reality.” At the heart of the problem, Aron Szapiro of Morningstar argued, is that workers must make complex financial decisions in the context of competing goals and obligations. This, he noted, has been particularly true in recent years as defined benefits plans, which required few decisions on the part of employees, have given way to defined contribution plans that require employee to be responsible for saving. One way to help workers save, according to Timothy Flacke of Doorways to Dreams Fund, is to make to process more enjoyable. Flacke described how gamifying personal finance can facilitate positive financial behavior, including saving for retirement.
In The New Yorker, James Surowiecki examines the political viability of a universal basic income (UBI) if it were framed as an insurance policy against changes in the job market. He writes: “By providing an income cushion, it would increase workers’ bargaining power, potentially driving up wages. It would make it easier for people to take risks with their job choices, and to invest in education.” Providing evidence from a range of experiments, Surowiecki contends UBI would help young people stay in school and wouldn’t have a dramatic impact on employment. Further, he notes, throughout its history the idea has enjoyed a fair amount of support on both sides of the aisle. While Surowiecki admits the policy may be untenable given the current political climate, he suggests that like social security and medicaid UBI may go “from completely improbable to totally necessary.”
News in Brief: Debtors’ Prisons, Wealth Inequality, the Safety Net, and More
- Laura Kwerel writes about the difficulties she faced trying to get Supplemental Security Income for her premature infant daughter in The Atlantic.
- The New York Times’ Nicholas Kristof reports on the legality of imprisoning an individual who is unable to pay fines: “The Supreme Court has ruled that people should be jailed only when they refuse to pay, not when they can’t, and in theory safeguards protect the indigent. In practice those safeguards are chimerical, and the poor are routinely jailed for being poor.”
- Nick Bourke of Pew Charitable Trusts participates in a Q&A on the Consumer Financial Protection Bureau’s proposed payday lending rules with theAssociated Press.
- Marketplace and Business Insider offer a five-part series on the historical role of profits and shareholders in corporations.
- Writing for Next City, Courtney Hutchinson reports on a few startups that are making it their mission to make the gig economy more equitable for its workers.
- Citing a recently released research paper, The Washington Post’s Jim Tankersley covers how wealth inequality in the U.S. made the recession worse.
- NPR’s Yuki Noguchi tells of a church’s campaign to curb payday lending in its city by offering safer and more affordable small-dollar loans.
- American Banker and the Center for Financial Services Innovation hosted the 2016 EMERGE forum to explore ways to improve consumers’ financial health.
Making Government Programs Work for Families: Lessons from States and Next Steps for Improving Access to Work Support Benefits | Urban Institute | June 28, 2016Breaking it Down: The CFPB Payday/Auto Title Loan Proposed Rules | Illinois Asset Building Group | June 21, 2016